Greece's new government bonds, issued as part of the country's huge debt restructuring, hit the market Monday—and confirmed that few investors think Greek prospects are bright.

Even though the exchange, when fully completed, will cut €100 billion, or about $130 billion, off of Greece's debt stock and lower its interest payments on much of the rest, there is still broad pessimism that Greece will ever pay it all back.

Yields on the new Greek bonds are the highest in the euro zone; the shortest-dated Greek bond, which matures in 11 years, was yielding 18.6% on Monday, according to Tradeweb.
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"Nobody believes that 120% is a sustainable number for Greece," says David Miller of Cheviot Asset Management in London. "Immediately, attention has been paid to the next stage of this, which is, 'When is the next restructuring?' " About the new bonds, he says, "there's no great confidence they'll be around to maturity."

Kurt Karl, managing director, chief economist and head of economic research and consulting at Swiss Re, has predicted that Portugal will be the next nation to default, but that it will not cripple the insurance industry.

Oh, well as long as the insurance companies are ok....

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Germany is poised to bow to international pressure and allow a temporary increase in the euro zone’s financial “firewall” this week, to prevent the crisis in the region’s periphery spreading to other member states.

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Senior European officials said a consensus appeared to be building behind Mr Rehn’s “mid-range” option, which would allow the 440 billion euros ($583 billion) European Financial Stability Facility, the current temporary rescue fund, to keep running when a new permanent 500 billion euros fund, called the European Stability Mechanism, starts up in the middle of this year.

That would boost the rescue system’s overall firepower to 940 billion euros ($1.246 trillion), although with about 200 billion euros committed to Greek, Irish and Portuguese bailouts, the total available would be 740 billion euros.
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The only other country that has not publicly backed the increase is Germany’s fellow triple A ally Finland, where increasing the size of the euro zone bailout funds has proved politically controversial.

Jyrki Katainen, the Finnish prime minister, said, in an interview with the Financial Times, he was willing to find a “good compromise” and had “some numbers in my mind” about how large the total should be. He declined to give a specific figure, however, and said he was worried that making the system too large could add to the debt loads of creditor countries, destabilising the euro zone.

French borrowing costs rose as the nation sold 8.44 billion euros ($11 billion) of debt today, while Spanish bonds fell for a third day after Prime Minister Mariano Rajoy said yesterday the nation faces “extreme difficulty.”

The extra yield investors demand to hold 10-year French bonds instead of benchmark German bunds reached 127 basis points, or 1.27 percentage point, the most since Feb. 1. The yield spread between Spanish and German 10-year bonds exceeded 4 percentage points for the first time since Dec. 12, and German five-year note yields dropped to a record low as investors sought the safest assets.

The cost of insuring against default on European corporate debt rose, with the Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbing 6.5 basis points to 135.5, according to BNP Paribas SA, the highest in almost a month.

German industrial output fell 1.3 percent in February from the previous month, dropping more than the 0.5 percent median estimate of economists in a Bloomberg survey.

Here we go again. Spain sounds completely screwed. How can a developed country have an unemployment rate around 23%?

Not the Economy (yet) but how I feel so far in my weekend reading. Even John Mauldin, who went against his wishes to ignore Spain this week, now echos my thoughts on the subject in an excellent overview of the situation. Russ Winter has a similar view in "Bernanke and Germany Wake up to a Merda Storm," and Mish discusses Spain's emergency ban on cash transactions exceeding 2,500 Euros in an effort to clamp down on tax evaders and stop the rapid flow of money out of the country as well as the massive jump in Bank of Spain borrowing from the ECB.

Things are going so "well" in Spain that the Government banned cash payments in excess of 2,500 euros

Via Google Translate from Libre Mercado …

Quote:

The Prime Minister, Mariano Rajoy, has announced on Wednesday that the plan to combat tax evasion on Friday approved the Cabinet prohibit the payment in cash transactions of over € 2,500 and n which at least involved a businessman professional.

During the control session the Government in the House of the Congress of Deputies and in response to a question about the tax amnesty made by the general coordinator of IU, Cayo Lara, the Prime Minister has revealed that those who violate the ban will face fines of 25% of the payment made ??in cash.

Black Money

This measure aims to prevent the use of black money in commercial transactions and, in the case of companies, give them an obstacle to not resort to false invoices. The plan to combat fraud adopted on Friday, the Cabinet intends to raise up to 8.171 million euros in 2012.

I calmly predict that black market transactions in Spain will soar as soon as Spain is stupid enough to hike the VAT.

Sadly, such stupidity is just around the corner as noted in Slow Road to Hell: Spain Entertains VAT Hike

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Let's see what happens on April 19th - the next big Spanish bond auction. I think at that point it will become evident if they are completely screwed - right now it looks like they are unless the ECB or IMF take action.